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Muni Bond ETF: On Track for Worst Month Since September 2008

An index of investment grade muni bonds that forms the basis of the largest ETF in the category is down 5% so far in June and is on track for its worst month in nearly five years as Treasury yields jump.

The S&P National AMT-Free Municipal Bond Index is off by 4.97% in June so far, the worst month since September 2008 when the index was down 5.13%, according to a note Tuesday from J.R. Rieger, vice president of fixed income indices at S&P Dow Jones Indices.

Yields on bonds in the index have risen by nearly a full percentage point since the end of May.

The benchmark is the tracking index for the $3.4 billion iShares National AMT-Free Muni Bond ETF (MUB), which was launched in 2007. The fund was higher Tuesday but is still down nearly 7% for the trailing month after a sharp sell-off. Interest rates have jumped the past month on speculation the Federal Reserve may ease back on its purchases of Treasury bonds and mortgages.

High-yield municipal bonds tracked in the S&P Municipal Bond High Yield Index have seen a negative return of 7.08% for June so far, the worst month since December 2008 when the index lost 9.12%, according to S&P Dow Jones Indices.

Market Vectors High-Yield Muni ETF (HYD) is down nearly 12% the past month. The fund was trading at a discount of nearly 3% to intraday indicative value on Tuesday afternoon, according to Morningstar data.

Market Vectors High-Yield Muni ETF

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